Our 2021 Mid-Year Market Update
By The CFP® Team at Washington Wealth Advisors
If 2020 taught us anything, it’s that we can’t predict the future, nor do we have control over many of the things we once took for granted. Most of us entered 2021 with a bit of apprehension.
July is the perfect time to take stock of what’s happened so far in 2021, as we continue to emerge from the COVID-19 pandemic.
As we predicted at the end of 2020, economic recovery following vaccination rollout has been gradual, and not without its ripple effects. As expected, the Biden Administration passed another coronavirus relief bill in March costing $1.9 trillion, which sent a third round of payments to Americans and extended many of the provisions set forth by previous stimulus bills.
The rising inflation rate is one of the most heavily discussed economic topics, particularly for costs in the oil, gas and auto industries. Rising inflation has some economists worried about long-term effects, while others maintain that this is merely a transitory period and inflation rates will return to normal. From our perspective, only time will tell, but we believe it’s important to keep an eye on inflation rates and its potential impact on the markets and your retirement.
The general expectation has been that as businesses reopen to full capacity, the number of unemployment claims and levels of unemployment will return to normal. However, this is currently not the case.
Along with other businesses in the hospitality industry, restaurants are struggling to replace workers and remain understaffed in the face of increasing demand from consumers.
In June, the unemployment rate remained relatively unchanged, steadying at 5.9%. Although this rate is considerably lower than the unemployment peak in April of 2020, it is still more than 2 percentage points higher than unemployment levels prior to the coronavirus pandemic.
As vaccine rollouts have allowed many businesses to return to normal, some experts believe we may be entering a booming economy. Stock market performance has been mildly volatile in the first half of this year with an overall trend toward growth. Before July, the S&P 500 reached its highest level this year on May 7, with a year-to-date return of 17% as of July 2. The Dow Jones has also shown overall growth this year and is up 15% as of July 2.
Meanwhile, the NASDAQ has shown greater volatility with a yearly low of -2.17% in early March, up to 9.7% at the end of April, and ending at 15% as of July 2. Many experts have warned that while they are optimistic about market performance in 2021, that performance may continue to experience volatility throughout 2021 and in the coming years.
Interest rates continue to remain low, as the Federal Reserve has promised. To encourage consumers to keep borrowing, the Fed has kept interest rates near zero since the onset of the pandemic. They have stated they will likely not raise rates again until 2023, when it is more likely that inflation rates will reach desired targets.
For now, the near-zero interest rates may attract first-time homebuyers who have been able to weather the economic pressures from the pandemic. However, home prices have surged 13.2% over the past year, igniting some fears that a housing bubble may be looming.
As 2020 and 2021 have taught us, we never know what lies ahead, but taking steps to build a plan for ourselves in the pursuit of financial independence can support peace of mind.
Now more than ever, it’s important to know you’re making the financial decisions that are moving you toward your goals. Our team at Washington Wealth Advisors specializes in helping our clients reach financial independence using sound financial strategies that align your day-to-day decisions with your long-term financial plan.
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